##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2005 o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 Commission File Number 333-33572   DIAMOND TRIUMPH AUTO GLASS, INC.  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    23-2758853
(I.R.S. Employer
Identification No.)
 220 DIVISION STREET, KINGSTON, PENNSYLVANIA 18704
(Address, including zip code of principal executive offices) (570) 287-9915
(Telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or Section 15(d) of the Securities
and Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes þ No o Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2) Yes o No þ As of May 16, 2005, there were 1,011,366 shares outstanding of
Diamonds Common Stock ($.01 par value) and 35,000 shares outstanding
of Diamonds Series A 12% Senior Cumulative Preferred Stock ($.01 par
value).




---



DIAMOND TRIUMPH AUTO GLASS, INC.
Form 10-Q
For the Quarter Ended March 31, 2005 INDEX Page No.Part I. Financial InformationItem 1. Consolidated Financial StatementsCondensed Consolidated Balance Sheets  March 31, 2005 (unaudited) and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations (unaudited)  Three Months Ended March 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited)  Three Months Ended March 31, 2005 and 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    16Part II. Other InformationItem 1. Legal Proceedings
    
    
    17Item 6. Exhibits and Reports on Form 8-K
    
    
    18Signature
    
    
    19EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  2




---



##### Table of Contents



DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY 
   March 31, 2005
    
    
    December 31, 2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,208
    
    
    $
    139Accounts receivable, net
    
    
    13,385
    
    
    
    10,160Other receivables
    
    
    541
    
    
    
    431Inventories
    
    
    11,803
    
    
    
    12,135Prepaid expenses
    
    
    1,858
    
    
    
    1,838Deferred income taxes
    
    
    0
    
    
    
    0Total current assets
    
    
    29,795
    
    
    
    24,703Equipment and leasehold improvements, net
    
    
    4,652
    
    
    
    4,904Deferred loan costs and senior notes discount, net
    
    
    1,892
    
    
    
    2,050Deferred income taxes
    
    
    0
    
    
    
    0Other assets
    
    
    405
    
    
    
    380Total assets
    
    $
    36,744
    
    
    $
    32,037LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    13,021
    
    
    $
    12,231Accrued expenses:Payroll and related items
    
    
    4,939
    
    
    
    4,211Accrued interest
    
    
    3,693
    
    
    
    1,850Accrued income taxes
    
    
    465
    
    
    
    466Other
    
    
    2,356
    
    
    
    1,582Total accrued expenses
    
    
    11,453
    
    
    
    8,109Total current liabilities
    
    
    24,474
    
    
    
    20,340Long-term debt:Senior notes
    
    
    79,758
    
    
    
    79,758Credit facility
    
    
    
    
    
    
    250Total long-term debt
    
    
    79,758
    
    
    
    80,008Total liabilities
    
    
    104,232
    
    
    
    100,348Series A 12% senior redeemable cumulative preferred stock  par value
$0.01 per share; authorized 100,000 shares; issued and outstanding
35,000 shares in 2005 and 2004, at liquidation preference value
    
    
    80,077
    
    
    
    77,745Stockholders equity (deficit):Common stock, 2005 and 2004 par value $0.01 per share; authorized
1,100,000 shares; issued and outstanding 1,026,366 shares in 2005 and 2004
    
    
    10
    
    
    
    10Additional paid-in capital
    
    
    16,242
    
    
    
    18,574Deferred compensation
    
    
    (123
    )
    
    
    (149
    )Retained earnings (accumulated deficit)
    
    
    (163,394
    )
    
    
    (164,191
    )Common stock in treasury, at cost, 15,000 shares in 2005 and 2004
    
    
    (300
    )
    
    
    (300
    )Total stockholders equity (deficit)
    
    
    (147,565
    )
    
    
    (146,056
    )Total liabilities and stockholders equity (deficit)
    
    $
    36,744
    
    
    $
    32,037
 See notes to condensed consolidated
financial statements 3




---



##### Table of Contents



DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY 
   Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2004Net sales
    
    $
    53,538
    
    
    $
    53,376Cost of sales
    
    
    14,685
    
    
    
    15,186Gross profit
    
    
    38,853
    
    
    
    38,190Operating expenses
    
    
    36,002
    
    
    
    36,485Income from operations
    
    
    2,851
    
    
    
    1,705Other (income) expense:Interest income
    
    
    
    
    
    
    Interest expense
    
    
    2,054
    
    
    
    2,0892,054
    
    
    
    2,089Income (Loss) before provision for income taxes
    
    
    797
    
    
    
    (384
    )Provision (Benefit) for income taxes
    
    
    
    
    
    
    (319
    )Net Income (Loss)
    
    
    797
    
    
    
    (65
    )Preferred stock dividends
    
    
    2,332
    
    
    
    2,072Net loss applicable to common stockholders
    
    ($
    1,535
    )
    
    ($
    2,137
    )
 See notes to condensed consolidated
financial statements 4




---



##### Table of Contents



DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY 
   Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2004OPERATING ACTIVITIESNet cash provided by operating activities
    
    $
    2,636
    
    
    $
    3,064INVESTING ACTIVITIESCapital expenditures
    
    
    (319
    )
    
    
    (321
    )Proceeds from sale of equipment
    
    
    27
    
    
    
    23(Increase) Decrease in other assets
    
    
    (25
    )
    
    
    33Net cash used in investing activities
    
    
    (317
    )
    
    
    (265
    )FINANCING ACTIVITIESPayment for redemption of senior notes
    
    
    
    
    
    
    Net Proceeds from credit facility
    
    
    8,000
    
    
    
    8,250Payments on credit facility
    
    
    (8,250
    )
    
    
    (9,250
    )Net cash used in financing activities
    
    
    (250
    )
    
    
    (1,000
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    2,069
    
    
    
    1,799Cash and cash equivalents, beginning of period
    
    
    139
    
    
    
    35Cash and cash equivalents, end of period
    
    $
    2,208
    
    
    $
    1,834
 See notes to condensed consolidated financial statements 5




---



##### Table of Contents



DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY 
   Note 1. Significant Accounting Policies These interim financial statements are unaudited but, in the opinion of management, reflect
all adjustments (consisting only of normal recurring adjustments) necessary to present fairly
the data for the interim periods presented. The interim financial statements should be read
in conjunction with the audited financial statements and notes thereto contained in Diamonds
Annual Report on Form 10-K for the year ended December 31, 2004. Diamonds results for
interim periods are not normally indicative of results to be expected for the fiscal year.
Weather has historically affected Diamonds sales and net income, with severe weather

generating increased sales and net income, and mild weather resulting in lower sales and net
income. In addition, Diamonds business is somewhat seasonal, with the first and fourth
calendar quarters traditionally its slowest periods of activity. Preferred Stock: At March 31, 2005 and December 31, 2004, the liquidation value of the Preferred Stock recorded
on Diamonds Balance Sheet was $80,077 and $77,745, respectively, which includes dividends of
$45,077 and $42,745, respectively. Borrowings: Credit Facility  On March 27, 2000, Diamond entered into a Credit Facility, which had an
initial term of four years and provided for revolving advances of up to the lesser of: (1)
$25,000; (2) the sum of 85% of Diamonds Eligible Inventory (as defined in the Credit
Facility), less certain reserves; or (3) an amount equal to 1.5 times Diamonds EBITDA (as
defined in the Credit Facility) for the prior twelve months. On November 26, 2003, Diamond
amended the Credit Facility, which , among other things, extended the term for an additional
three year period through March 27, 2007. A portion of the Credit Facility, not to exceed
$10,000, is available for the issuance of letters of credit, which generally have an initial
term of one year or less. Diamond had $6,841 in outstanding letters
of credit at March 31,
2005. Borrowings under the Credit Facility bear interest, at Diamonds discretion, at either
the JPMorgan Chase Manhattan Bank Rate (as defined in the Credit Facility) or LIBOR, plus a
margin of 0.50% for the JPMorgan Chase Manhattan Rate and 2.25% - 2.75% for the LIBOR Rate.
Diamond also pays the Letter of Credit Guaranty Fee (as defined in the Credit Facility)
in an amount equal to 1.45% - 2.25% per annum, payable monthly, on the face amount of each
outstanding Letter of Credit (as defined in the Credit Facility) less the amount of any and
all amounts previously drawn under such Letters of Credit. In addition, a commitment fee of
0.25% is charged against any unused balance of the Credit Facility. Interest rates are
subject to increases or reductions based upon the level of Diamonds borrowings under the
Credit Facility. The proceeds of the Credit Facility are available for working capital
requirements and for general corporate purposes. The Credit Facility is secured by first
priority security interests in all of the tangible and intangible assets of Diamond. In
addition, the Credit Facility contained certain restrictive covenants including, among other
things, prior to March 30, 2005, the maintenance of a minimum EBITDA level of $10,500 for the
prior twelve months, as well as restrictions on additional indebtedness, dividends and certain
other significant transactions. Diamond obtained a covenant waiver for the Credit Facility on
March 4, 2005, with respect to the EBITDA levels required to be maintained for January and
February of 2005. 6




---



##### Table of Contents



DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands except per share amounts) In addition, on March 30, 2005, Diamond amended the Credit Facility, to, among other things,
amend Diamonds Availability (as defined in amendment number ten to the Credit Facility).
This amendment provides for revolving advances of up to the lesser of: (1) $25,000; (2) the
sum of 85% of Diamonds eligible Accounts Receivable (as defined in the Credit Facility) plus
85% of Diamonds Eligible Inventory (as defined in the Credit Facility), less certain
reserves; or (3) an amount equal to 2.0 times Diamonds EBITDA (as defined in the Credit
Facility) for the prior twelve months. In addition, the amendment replaced the minimum EBITDA
covenant (as defined in the Credit Facility) with a Fixed Charge Coverage Ratio (as defined in
amendment number ten to the Credit Facility). The Credit Facility, as amended, requires
Diamond to maintain as of the end of each fiscal month through December 31, 2005, a Fixed
Charge Coverage Ratio of not less than 1.0:1.0 for the then trailing 12-month period. As of
the end of each fiscal month thereafter, Diamond is required to maintain a Fixed Charge
Coverage Ratio of not less than 1.1:1.0 for the then trailing 12-month period. Diamond had no
outstanding balance under the Credit Facility at March 31, 2005. Stock Option Plan: In September 1998, the Board of Directors and stockholders of Diamond approved and adopted the
Diamond Triumph Auto Glass 1998 Stock Option Plan (the 1998 Plan). The 1998 Plan provides
for the issuance of a total of 30,000 authorized and un-issued shares of common stock. As of
March 31, 2005, the Board of Directors had granted 21,575 options to key employees of Diamond
with an exercise price of $20.00 per share, which approximated fair value at the date of
grant. The options vest evenly over five years and may not be exercised until the earlier of
(a) 90 days after Diamonds Common Stock has become publicly traded or (b) 91 days prior to
the tenth anniversary of the date of the grant. The 1998 Plan expires in September 2008. No
options were granted during calendar year 2004 nor during the three months ended March 31,
2005. Diamond accounts for its stock option plan using the intrinsic-value method in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees. Under the intrinsic-value method, because the exercise price of Diamonds employee
stock options is equal to the market price of the underlying stock on the date of grant, no
compensation expense is recognized. In 1995, the Financial Accounting Standards Board (FASB)
issued SFAS 123, Accounting for Stock-Based Compensation. SFAS 123 established a fair value
based method of accounting for stock-based compensation plans. SFAS 123 requires that a
companys financial statements include certain disclosures about stock-based employee
compensation arrangements regardless of the method used to account for the plan. In December
2004, the FASB issued Statement No. 123 (revised 2004), Stock-Based Payment (SFAS 123R).
This statement replaces SFAS 123, supersedes APB No. 25 and amends SFAS 95, Statement of Cash
Flows, to require that excess tax benefits be reported as a financing cash inflow rather than
as a reduction of taxes paid. SFAS 123R is effective the first interim or annual reporting
period that begins after June 15, 2005, which will be for the period covered by our quarterly
report on Form 10-Q for the third quarter of 2005. As allowed by SFAS 123, Diamond has elected to continue to account for its employee
stock-based compensation plans under APB No. 25, and adopted only the disclosure requirements
of SFAS 123. Had compensation cost for Diamonds common stock options been determined based
upon the fair value of the options at the date of the grant, as prescribed under SFAS 123, as
amended by SFAS, Accounting for stock-based compensation, Diamonds net income (loss) would
have been reduced to the following pro forma amounts: 7




---



##### Table of Contents



DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands except per share amounts) Three Months Ended March 31,2005
    
    
    2004Net Income (Loss) as reported
    
    $
    797
    
    
    $
    (65
    )Add stock-based employee compensation expense
included in reported net income, net of tax
    
    
    26
    
    
    
    16Deduct total stock-based employee compensation
expense determined under fair-value-based
method for all rewards, net of tax
    
    
    (29
    )
    
    
    (18
    )Net Income
(Loss) - Pro forma
    
    $
    794
    
    
    $
    (67
    )
 Note 2. Recent Accounting Pronouncements In December 2004, the FASB issued Statement No. 123 (revised 2004), Stock-Based Payment
(SFAS 123R). This statement replaces SFAS 123, Accounting for Stock-Based Compensation,
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and amends
SFAS 95, Statement of Cash Flows, to require that excess tax benefits be reported as a
financing cash inflow rather than as a reduction of taxes paid. SFAS 123R is effective the
first annual reporting period that begins after June 15, 2005, which will be for the period
covered by our annual report on Form 10-K for the period beginning January 1, 2005. We
currently account for stock option grants using the intrinsic-value method in accordance with
APB 25. Under the intrinsic-value method, because the exercise price of Diamonds employee
stock options is equal to the market price of the underlying stock on the date of the grant,
no compensation expense is recognized. If we would have applied the fair value recognition
provisions of SFAS 123R, we would have had a charge to earnings of $3 for stock-based employee
compensation, net of related income taxes, for the three months ended March 31, 2005. Note 3. Executive Compensation On June 1, 2002 (the Grant Date), Norman Harris (the Executive) and Diamond entered into a
Restricted Stock Agreement (the Agreement) pursuant to which the Executive purchased from
Diamond 26,366 shares (the Restricted Shares) of Diamonds common stock, par value $0.01 per
share, for nominal consideration. The Agreement generally restricts the sale or
transferability of shares of Common Stock held by the Executive before the Restrictions (as
defined in the Agreement) have lapsed. The Executive has all rights and privileges of a
stockholder with respect to the Restricted Shares, including voting rights and the right to
receive dividends paid with respect to the Restricted Shares. Generally, the Restricted Shares
vest and the Restrictions lapse: (i) with respect to 20% of the Restricted Shares on the Grant
Date; and (ii) with respect to 20% of the Restricted Shares on each subsequent anniversary of
the Grant Date until the Restricted Shares are fully vested. Compensation expense, unearned
restricted stock compensation, and proceeds from common stock issued have been recognized
based on the vesting periods and an estimated fair market value of $20 per share at the time
of the Agreement. 8




---



##### Table of Contents



DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands except per share amounts) Note 4. Legal Proceedings On May 2, 2002, Diamond filed an amended Complaint with the United States District Court,
Middle District of Pennsylvania against Safelite Glass Corporation (the Defendant). Diamond
alleges, among other things, that the Defendants conduct as (i) an operator of national
telephone call centers which takes first notice of loss calls from insurers of several of the
largest automobile insurers in the United States (the Insurers); (ii) a provider of various
claims processing services to the Insurers as a third-party administrator and; (iii) an
operator of a network of retail repair and replacement facilities who perform work for the
Insurers as Safelite affiliates, violated certain federal and state laws and give rise to
other legal and equitable claims against the Defendant. Diamond alleges that the Defendant
engaged in various practices designed to divert customers away from Diamond to the Defendant,
and that Diamond has suffered damages as a result of this conduct in an amount to be
determined at trial. On November 1, 2002 and February 2, 2004, the Defendant filed a counter claim and second
amended counterclaim, respectively, against Diamond, alleging, among other things, that
Diamond has engaged and continues to engage in publishing certain false and defamatory
statements about the Defendant to automobile insurance companies that are the Defendants
clients, and that Diamond engages in improper promotional and marketing practices in return
for
autoglass repair or replacement references. Defendant alleges that this alleged conduct has
injured the Defendants goodwill and business reputation with its insurance clients and in the
autoglass repair and replacement industry. Among other things, the Defendant is seeking
damages in an amount to be determined at trial. Diamond believes that Defendants
counterclaims are without merit. On February 3, 2003, Delbert Rice and Kenneth E. Springfield, Jr., on behalf of themselves and
all others similarly situated (the Plaintiffs), filed a class action Complaint in the Court
of Common Pleas of Luzerne County against Diamond. Plaintiffs allege, among other things,
Diamond violated certain sections of the Pennsylvania Unfair Trade Practices and Consumer
Protection Law and common law. Plaintiffs allege that this alleged conduct has caused
monetary damages to Plaintiffs. Among other things, Plaintiffs are seeking damages in an
amount to be determined at trial. Diamond believes Plaintiffs allegations are without merit
and plans to vigorously contest this complaint. Diamond is involved in other legal proceedings in the ordinary course of its business.
Management believes that the amounts which may be awarded or assessed against Diamond in
connection with these matters, if any, will not have a material adverse effect on Diamonds
financial condition, operating results or liquidity. In addition, management believes that
Diamond has appropriate insurance coverage to operate its business, including insurance for
its mobile installation units and technicians. Note 5. Income Taxes On January 15, 1998, Diamond, Kenneth Levine, Richard Rutta, Green Equity Investors II, L.P.
and certain affiliated entities of Diamond entered into a Second Amended and Restated Stock
Purchase Agreement, pursuant to which, among other things, Green Equity Investors II, L.P. and
other investors acquired 80.0% of the Common Stock and 80.0% of the Preferred Stock (the
Recapitalization). The Recapitalization was consummated on March 31, 1998. For tax
purposes, the parties made a joint election under Internal Revenue Code (the IRC) Section
338(h)(10), under which the assets and liabilities of the affiliates were recorded at their
fair market values for tax purposes resulting in $118.5 million of tax deductible goodwill. A
financial statement deferred tax asset was also established on March 31, 1998 in the amount of
approximately $44.8 million with a credit to additional paid-in capital as the
Recapitalization was recorded for financial statement purposes as a recapitalization for which
purchase accounting was not applied. 9




---



##### Table of Contents



DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands except per share amounts) The Internal Revenue Service (the IRS) has concluded its audit of the tax periods ended
December 31, 1998, 1999, and 2000. As a result of this audit, the IRS issued a notice of
proposed adjustments on February 20, 2002, which included a disallowance of the tax-deductible
goodwill resulting from the aforementioned Recapitalization. The IRS has asserted that the
Recapitalization did not qualify as a stock purchase, and accordingly, that the election under
IRC Section 338(h)(10) was not valid. As a result, if the IRS position were sustained,
tax-deductible goodwill would not be recognizable by Diamond. Diamond strongly believes that
the Recapitalization was properly accounted for, and has appealed the Internal Revenue
Services proposed adjustment. On February 25, 2005, the Chief Financial Officer of Diamond was informed by an IRS appeals
officer that the IRS had made a determination regarding Diamonds election under IRC Section
338(h)(10). The IRS appeals officer communicated that, subject to final supervisory review
and the issuance of a closing letter, the issue related to Diamonds election under the IRC
Section 338(h)(10) has been resolved in Diamonds favor and that the proposed adjustment made
by the IRS on February 20, 2002 to disallow Diamonds election under the IRC Section
338(h)(10) will be reversed. Based on this communication, Diamond expects to receive a final
written determination from the IRS during the second calendar quarter of 2005 informing
Diamond that the issue related to Diamonds election under the IRC Section 338(h)(10) has been
resolved in Diamonds favor. The proposed adjustments by the Internal Revenue Service would have resulted in $7.4 million
of federal tax deficiencies owed by Diamond for the period December 31, 1998 through December
31, 2004, plus possible interest and penalties and any resultant increases in current state
tax expense for this period. Additionally, the deferred tax asset established in 1998 would
have been eliminated, as well as net operating loss carry forwards from previous deductions of
the tax goodwill. If such appeal were ultimately unsuccessful, the Internal Revenue Services
proposed adjustment would have a material adverse affect on Diamonds liquidity, cash flows,
balance sheet and results of operations. The Company utilized a portion of its net operating loss carry forwards for the three
months ended March 31, 2005 to reduce any tax provisions on its pre-tax income. At March 31,
2005 Diamond maintained a 100% valuation allowance for its remaining net deferred tax assets
based on the uncertainty of realization of future taxable income. Note 6. Contingent Guaranteed Commitments Diamond leases certain vehicles under operating leases having lease terms of 367 days. The
leases have monthly renewal options. The vehicle lease agreements provide for terminal lease
payments for guaranteed residual values reduced by actual proceeds from the vehicle sale in
the event the lease is not renewed. The contingent guaranteed residual value payment
commitment was $13.3 million at March 31, 2005. No amounts have been accrued related to this
contingent obligation because Diamond does not believe it is probable
that residual value payments will
be required. Note 7. Subsequent Events Diamond repurchased $6,500 principal amount of its senior notes in open market transactions
during April of 2005 which will result in an aggregate financial statement gain. 10




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONSOverviewDiamond is a leading provider of automotive glass replacement and repair services in
the United States. At March 31, 2005, Diamond operated a network of 242 automotive
glass service centers, approximately 1,000 mobile installation vehicles and five
distribution centers in 44 states. Diamond serves all of its customers automotive
glass replacement and repair needs, offering windshields, tempered glass and other
related products. Sales, net income and EBITDA for the three months ended March 31,
2005 were $53.5 million, $0.8 million and $3.4 million, respectively.Weather has historically affected Diamonds sales and net income, with severe weather
generating increased sales and net income and mild weather resulting in lower sales
and net income. In addition, Diamonds business is somewhat seasonal, with the first
and fourth quarters traditionally its slowest period of activity. Diamond believes
these seasonal trends will continue for the foreseeable future.The price of replacement automotive glass is based in part on list prices developed
by the National Auto Glass Specification (NAGS), an independent third party.
Prices charged by participants in the automotive glass replacement industry are
independently determined using varying percentage discounts from the NAGS price list.
The impact of NAGS price changes on Diamonds financial results depends on the level
of discounts Diamond grants to its customers and the level of discounts that Diamond
can obtain from its glass suppliers. NAGS periodically modifies its published list
prices which has resulted in overall list price decreases of approximately 2% to 5%
annually over the past two years. Effective February 28, 2005, NAGS significantly
modified its published list prices of automotive glass in order to bring actual
prices more in line with published list prices, however, under this modified pricing
structure NAGS has made allowances for installation charges such as labor,
installation kits and other ancillary charges which were previously included in the
net list price. Diamond does not expect to be negatively impacted by these recent
NAGS modifications, as management believes that the overall modified pricing
structure is expected to remain relatively constant as compared to the previous NAGS
pricing structure.Diamond believes that, due to its sole focus on automotive glass replacement and
repair, it has one of the lowest cost structures in the automotive glass replacement
and repair industry. Diamonds low cost structure enables it to serve all markets of
the industry, which is comprised of: (1) individual consumers; (2) commercial
customers, including commercial fleet leasing companies, rental car companies, car
dealerships, body shops, utilities and government agencies; and (3) insurance
customers, including referrals from local agents, claims offices and centralized call
centers. While the largest participant in the industry primarily focuses on
servicing automotive glass insurance claims (including providing related insurance
claims processing services) and also manufactures automotive glass, Diamond has
strategically positioned itself solely as a provider of automotive glass replacement
and repair services to a balanced mix of individual, commercial and insurance
customers.
 11




---



##### Table of Contents



Results of Operations The following table summarizes Diamonds historical un-audited results of operations
and historical un-audited results of operations as a percentage of sales for the
three months ended March 31, 2005 and 2004. 2005
    
    
    2004$
    
    
    %
    
    
    $
    
    
    %(dollars in millions)Net Sales
    
    
    53.5
    
    
    
    100.0
    
    
    
    53.4
    
    
    
    100.0Cost of Sales
    
    
    14.7
    
    
    
    27.5
    
    
    
    15.2
    
    
    
    28.5Gross Profit
    
    
    38.9
    
    
    
    72.7
    
    
    
    38.2
    
    
    
    71.5Operating Expenses
    
    
    36.0
    
    
    
    67.3
    
    
    
    36.5
    
    
    
    68.4Income From Operations
    
    
    2.9
    
    
    
    5.4
    
    
    
    1.7
    
    
    
    3.2Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Interest Expense
    
    
    2.1
    
    
    
    3.9
    
    
    
    2.1
    
    
    
    3.92.1
    
    
    
    3.9
    
    
    
    2.1
    
    
    
    3.9Income (Loss) before provision for income taxes
    
    
    0.8
    
    
    
    1.5
    
    
    
    (0.4
    )
    
    
    (0.7
    )Provision (benefit) for income taxes
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.6
    )Net Income (Loss)
    
    
    0.8
    
    
    
    1.5
    
    
    
    (0.1
    )
    
    
    (0.2
    )EBITDA (1)
    
    
    3.4
    
    
    
    6.4
    
    
    
    2.3
    
    
    
    4.3
  (1)
    EBITDA represents earnings before interest, taxes, depreciation
and amortization. EBITDA is a measurement of Diamonds performance that
is not required by, or presented in accordance with, GAAP. EBITDA is not a
measurement of Diamonds financial performance under GAAP and should not
be considered an alternative to net income, operating income or any other
performance measures derived in accordance with GAAP or as an alternative to
cash flow from operating activities as a measure of its liquidity.Diamond presents EBITDA because it considers it an important
supplemental measure of its performance and believes it is frequently used by
securities analysts, investors and other interested parties in the evaluation of
companies in its industry, many of which present EBITDA when reporting their
results.Diamond believes issuers of high yield securities also present EBITDA
because investors, analysts and rating agencies consider it useful in measuring
the ability of those issuers to meet debt service obligations. Diamond believes EBITDA is an appropriate supplemental measure of debt service capacity,
because cash expenditures on interest are, by definition, available to pay
interest, and tax expense is inversely correlated to interest expense because tax
expense goes down as deductible interest expense goes up; depreciation and
amortization are non-cash charges.Diamond also uses EBITDA for the following purposes: (i) its executives
compensation plans base incentive compensation payments on its EBITDA performance
measured against budgets; and (ii) its credit agreement and its indenture for its
Notes use EBITDA to measure Diamonds compliance with 12




---



##### Table of Contents



covenants such as additional debt incurrence. EBITDA has limitations as an
analytical tool, and should not be considered in isolation, or as a substitute
for analysis of Diamonds results as reported under GAAP. Some of these
limitations are:  
    EBITDA does not reflect Diamonds cash expenditures, or future
requirements, for capital expenditures or contractual commitments;
    EBITDA does not reflect changes in, or cash requirements for,
Diamonds working capital needs;
    EBITDA does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments, on
Diamonds debt;
    Although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the future,
and EBITDA does not reflect any cash requirements for such replacements; and
    Other companies in Diamonds industry may calculate EBITDA
differently than Diamond does, limiting its usefulness as a
comparative measure.  Because of these limitations, EBITDA should not be considered as a measure
of discretionary cash available to Diamond to invest in the growth of its
business. Diamond compensates for these limitations by relying primarily
on its GAAP results and using EBITDA only supplementally.Reconciliation of EBITDA to net income follows for the un-audited periods indicated: Three
Months Ended March 31,2005
    
    
    2004(dollars in millions)Net income (Loss)
    
    $
    0.8
    
    
    $
    (.1
    )Interest expense
    
    
    2.1
    
    
    
    2.1Depreciation and amortization
    
    
    .5
    
    
    
    .6Provision (Benefit) for income taxes
    
    
    0
    
    
    
    (.3
    )EBITDA
    
    $
    3.4
    
    
    $
    2.3
 Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Net Sales.Net sales for the three-month period ended March 31, 2005 increased
0.3% to $53.5 million from $53.4 million as compared to the three-month period ended
March 31, 2004. Installation units sold for the three months ended March 31, 2005
decreased 1.4% compared to the three months ended March 31, 2004. Diamonds revenue
per installation unit for the three-month period ended March 31, 2005 was 1.2% higher
than the revenue per installation unit for the three-month period ended March 31,
2004. The decrease in installation units sold is primarily due to
decreased demand in certain regions, which did not experience severe
winter weather conditions. The increase in revenue 13




---



##### Table of Contents



per installation unit is
primarily due to changes in overall product mix.
The increase in sales is due to the increase in revenue per installation unit, as
discussed above. Gross Profit.Gross profit was $38.9 million for the three months ended March
31, 2005 and $38.2 million for the three months ended March 31, 2004. Gross profit
increased as a percentage of sales to 71.5% for the three months ended March 31, 2005
from 71.5% for the three months ended March 31, 2004. The increase in gross profit
and gross profit percentage is primarily due to decreased product costs, which is due
to the continued leveraging of our purchasing power and to enhanced inventory
management as a result of increased system functionality from our recently upgraded
MIS platform. Operating Expenses.Operating expenses decreased by $0.5 million or 1.4% to
$36.0 million during the three-month period ended March 31, 2005 from $36.5 million
for the three-month period ended March 31, 2004. The decrease in operating expenses
was primarily due to a decrease in wages and wage related expenses at the service center level and within the corporate back office. We also experienced decreases
in occupancy, shop maintenance, telephone and vehicle maintenance expenses. These
decreases were partially offset by increases in legal and professional fees,
primarily due to increased costs as a result of Sarbanes-Oxley Section 404 compliance
implementation and our ongoing Safelite lawsuit. We also experienced an increase in
vehicle gas expense due to rising fuel prices. Depreciation and amortization expense for the three-month period ended March 31,
2005 decreased by $0.1 million or 16.7% to $0.5 million from $0.6 million for the
three-month period ended March 31, 2004. This was primarily due to decreases in
depreciation expense for vehicles, computer hardware, sales audit software, and POS
software that became fully depreciated. Income From Operations.Income from operations for the three months ended March
31, 2005 increased by $1.2 million, or 70.6%, to $2.9 million from $1.7 million for
the three months ended March 31, 2004. This increase was due to the increased gross
profit and decreased operating expenses, as discussed above. Interest Expense.Interest expense for the three months ended March 31, 2005 and
March 31, 2004 remained flat at $2.1 million. Net Income. Net income for the three months ended March 31, 2005 increased by
$0.9 million to $0.8 million net income from $0.1 million net loss for the three
months ended March 31, 2004. Net income as a percentage of sales increased 1.6% for
the three months ended March 31, 2005 compared to the three months ended March 31,
2004. The increase in net income and net income margin during the three months ended
March 31, 2005 compared to the three months ended March 31, 2004 was primarily due to
the increased income from operations, as discussed above. 14




---



##### Table of Contents



Liquidity and Capital ResourcesDiamonds need for liquidity will arise primarily from the interest payable on
its 91/4% Senior Notes (the Notes), its Credit Facility and the funding of Diamonds
capital expenditures and working capital requirements. There are no mandatory
principal payments on the Notes prior to their maturity on April 1, 2008 and, except
to the extent that the amount outstanding under the Credit Facility exceeds the
borrowing base, no required payments of principal on the Credit Facility prior to
its expiration on March 27, 2007. Diamond may from time to time repurchase Notes in
the open market.Net Cash Provided by Operating Activities. Net cash provided by operating
activities for the three months ended March 31, 2005 decreased by $0.5 million to
$2.6 million from $3.1 million for the three months ended March 31, 2004. The
decrease was primarily due to an increase in accounts receivable and
a decrease in accrued expenses
for the three month period ended March 31, 2005 compared to the three month period
ended March 31, 2004. These decreases were partially offset by the increase in net
income, as discussed above.Net Cash Used in Investing Activities. Net cash used in investing activities
for the three months ended March 31, 2005 remained flat at $0.3 million compared to
the three month period ended March 31, 2004.Net Cash Used in Financing Activities. Net cash used in financing activities
for the three months ended March 31, 2005 was $0.3 million compared to $1.0 million
used in financing activities for the three months ended March 31, 2004. The
decrease is due to a decrease of $0.7 million in net payments on the credit facility
for the three month period ended March 31, 2005 compared to the three month period
ended March 31, 2004.Capital Expenditures. Capital expenditures for the three months ended March
31, 2005 remained flat at $0.3 million compared to the three months ended March 31,
2004.Liquidity. Management believes that Diamond will have adequate capital
resources and liquidity to satisfy its debt service obligations, working capital
needs and capital expenditure requirements for the next 12 months. Diamonds
capital resources and liquidity are expected to be provided by Diamonds net cash
provided by operating activities and borrowings under its Credit Facility. See
Notes to Condensed Consolidated Financial Statements  Note 5. Income Taxes for a discussion
of Diamonds tax treatment of the Recapitalization and related valuation allowance
against its deferred tax asset.
 
 ITEM 3
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Diamond has a revolving Credit Facility that provides for revolving advances of up
to $25.0 million, and matures in March 2007. Borrowings under the Credit Facility
bear interest, at Diamonds discretion, at either the JP Morgan Chase Manhattan Bank
Rate (as defined in the Credit Facility) or LIBOR, plus a margin of 0.50% for the JP
Morgan Chase Manhattan Rate and 2.25% - 2.75% for the LIBOR Rate. In addition, a
commitment fee of 0.25% is charged against any unused balance of the Credit
Facility. Interest rates are subject to increases or reductions based upon Diamond
meeting certain EBITDA levels. At March 31, 2005, Diamond had no outstanding
borrowings under the Credit Facility.Forward-Looking StatementsReaders are cautioned that there are statements contained in this report which
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the Act). Forward-looking statements include
statements which are predictive in nature, which depend upon or refer to future
events or conditions, which include words such as expects, anticipates,
intends, plans, believes, will, estimates, or similar expressions. In
addition, any statements concerning
 15




---



##### Table of Contents



future financial performance (including future
revenues,
earnings or growth rates), ongoing business strategies or prospects, and possible
future actions, which may be provided by management, are also forward-looking
statements as defined by the Act. Forward-looking statements are based on current
expectations and projections about future events and are subject to risks,
uncertainties, and assumptions about Diamond, economic and market factors and the
industries in which Diamond does business, among other things. These statements are
not guarantees of future performance and Diamond has no specific intention to update
these statements.These forward-looking statements, like any forward-looking statements, involve
risks and uncertainties that could cause actual results to differ materially from
those projected or anticipated. The risks and uncertainties include the effect of
overall economic and business conditions, the demand for Diamonds products and
services, regulatory uncertainties, the impact of competitive products and pricing,
changes in customers ordering patterns and potential system interruptions. This
list should not be construed as exhaustive. Diamonds annual report on Form 10-K in
respect of the fiscal year ended December 31, 2004 discusses certain of these risks
and uncertainties under the caption Factors Affecting Future Performance.
 
 ITEM 4
    
    CONTROLS AND PROCEDURES
 Diamond maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in Diamonds Exchange Act reports
is recorded, processed, summarized and reported within the time periods specified in
the Securities and Exchange Commissions rules and forms and that such information
is accumulated and communicated to Diamonds management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.As required by SEC Rule 13a-15(b), Diamond carried out an evaluation, under the
supervision and with the participation of Diamonds management, including Diamonds
Chief Executive Officer and Diamonds Chief Financial Officer, of the effectiveness
of the design and operation of Diamonds disclosure controls and procedures as of
the end of the quarter covered by this report. Based on the foregoing, Diamonds
Chief Executive Officer and Chief Financial Officer concluded that Diamonds
disclosure controls and procedures were effective at the reasonable assurance level.There has been no change in Diamonds internal controls over financial
reporting during Diamonds most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, Diamonds internal controls over
financial reporting.
 16




---



##### Table of Contents



PART II OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS On May 2, 2002, Diamond filed an amended Complaint with the United States District
Court, Middle District of Pennsylvania against Safelite Glass Corporation (the Defendant).
Diamond alleges, among other things, that the Defendants conduct as (i) an operator of
national telephone call centers which takes first notice of loss calls from insureds of
several of the largest automobile insurers in the United States (the Insurers); (ii) a
provider of various claims processing services to the Insurers as a third-party
administrator and; (iii) an operator of a network of retail repair and replacement
facilities who perform work for the Insurers as Safelite affiliates, violated certain
federal and state laws and gave rise to other legal and equitable claims against the
Defendant. Diamond alleges that the Defendant engaged in various practices designed to
divert customers away from Diamond to the Defendant, and that Diamond has suffered damages
as a result of this conduct in an amount to be determined at trial. On November 1, 2002 and February 2, 2004, the Defendant filed a counter claim and
second amended counterclaim, respectively, against Diamond, alleging, among other things,
that Diamond has engaged and continues to engage in publishing certain false and defamatory
statements about the Defendant to automobile insurance companies that are the Defendants
clients, and that Diamond engages in improper promotional and marketing practices in return
for autoglass repair or replacement references. Defendant alleges that this alleged conduct
has injured the Defendants goodwill and business reputation with its insurance clients and
in the autoglass repair and replacement industry. Among other things, the Defendant is
seeking damages in an amount to be determined at trial. Diamond believes that Defendants
counterclaims are without merit. On February 3, 2003, Delbert Rice and Kenneth E. Springfield, Jr., on behalf of
themselves and all others similarly situated (the Plaintiffs), filed a class action
Complaint in the Court of Common Pleas of Luzerne County, Pennsylvania against Diamond.
Plaintiffs allege, among other things, Diamond violated certain sections of the Pennsylvania
Unfair Trade Practices and Consumer Protection Law and common law. Plaintiffs allege that
this alleged conduct has caused monetary damages to Plaintiffs. Among other things,
Plaintiffs are seeking damages in an amount to be determined at trial. Diamond believes
Plaintiffs allegations are without merit and plans to vigorously contest this complaint. From time to time, Diamond is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on Diamonds financial condition,
results of operations or liquidity. No amounts have been recorded in the consolidated
financial statements for any of these legal actions. 17




---



##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    Exhibits ExhibitNumber
    
    Description10.1 (1)
    
    Waiver and Amendment Number Ten to Financing Agreement,
dated March 27, 2000, between the CIT Business Group/Business Credit, Inc. and
Diamond Triumph Auto Glass, Inc.31.1
    
    Sarbanes-Oxley Section 302(a) Certification of the Chief Executive Officer.31.2
    
    Sarbanes-Oxley Section 302(a) Certification of the Chief Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief
Executive Officer.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief
Financial Officer.(1)
    
    Incorporated by reference to Diamonds Annual Report on Form
10-K for the fiscal year ended December 31, 2004
  (b)
    Reports on Form 8-KForm 8-K filed on April 4, 2005, reporting that Diamond Triumph Auto Glass, Inc.
issued a press release announcing its operating and financial results for the year
ended December 31, 2004. Diamond also reported that it entered
into amendment number ten to its Credit
Facility as of March 30, 2005. 18




---



##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized. DIAMOND TRIUMPH AUTO GLASS, INC.Date: May 16, 2005
    
    
    
    By:
    
    /s/ Michael A. SumskyName:
    
    Michael A. SumskyTitle:
    
    President,Chief Financial Officer and GeneralCounsel (Principal Financial and ChiefAccounting Officer)
 19